A strategy that considers all costs associated with an asset throughout its entire lifespan, from acquisition to disposal, to determine its optimal price. This approach contrasts with traditional methods that primarily focus on initial purchase price or short-term costs. An illustration of this involves a manufacturer evaluating the long-term expenses of operating a machine, encompassing purchase price, energy consumption, maintenance, and eventual decommissioning costs, to establish a price that ensures profitability over the machines operational life.
Adopting a holistic costing approach provides numerous advantages. It facilitates more informed decision-making by providing a complete cost picture. This comprehensive view enables businesses to enhance profitability through cost optimization, improve budgeting accuracy, and gain a competitive edge by offering products or services at prices that reflect their true long-term value. Historically, its adoption has grown with increasing awareness of sustainability and the need for businesses to account for environmental and social costs associated with their operations.
